Court Enjoins Key Federal Contractor “Blacklisting” Regulations; But Pay Transparency Obligations Will Be Effective January 1, 2017

Any company that directly or indirectly sells goods and services to the federal government or works on federal construction projects is subject to the new "Fair Pay and Safe Workplaces" regulations. What are those? They are regulations issued by Department of Defense (DOD), General Services Administration (GSA), and National Aeronautics and Space Administration (NASA) requiring covered contractors to, among other things, disclose federal employment and labor law violations as part of the bidding process, comply with so-called pay transparency obligations, and limit the use of pre-dispute arbitration agreements. On October 24, 2016, a court granted an injunction on some of these obligations. Keep reading to learn what obligations apply now and what you need to do to keep your company from getting stuck in the compliance quagmire of these new regulations.

On July 31, 2014, President Barack Obama signed the Fair Pay and Safe Workplaces Executive Order 13673, which became known as the "blacklisting" regulations.  The DOD, GSA, and NASA issued final regulations modifying the federal acquisition regulations.  See 81 Federal Register #165, 58562-58651 (8/25/2016).  The Department of Labor issued final guidance on the "blacklisting" regulations, too. See 81 Federal Register #165, 58654-58768 (8/25/2016).

Disclosure of Violations - On Hold

The "blacklisting" regulations would require contractors to disclose violations of the following laws and Executive Orders: 

• Fair Labor Standards Act (FLSA)
• Occupational Safety and Health Act (OSHA)
• National Labor Relations Act (NLRA)
• Family and Medical Leave Act (FMLA)
• Davis-Bacon Act
• Service Contract Act
• Title VII of the Civil Rights Act
• Americans with Disabilities Act (ADA)
• Age Discrimination in Employment Act (ADEA)
• Section 503 of the Rehabilitation Act
• Vietnam Era Veterans’ Readjustment Assistance Act
• Executive Order 11246
• Executive Order 13658 (federal contractor minimum wage)

Agencies would then use the self-reported violations in selecting contractors to win contract bids.

The disclosure obligation was scheduled to become effective April 25, 2017 for federal contracts or subcontracts estimated to equal or exceed $500,000. The disclosure obligation was to have gone into effect as of October 25, 2016 for federal contracts or subcontracts estimated to equal or exceed $50 million. This week, a federal court in Texas issued a nationwide injunction precluding the implementation of the disclosure obligations of the regulations, finding them to be unconstitutional on several grounds. See Associated Builders and Contractors of Southeast Texas v. Anne Rung, Civ. Action No. 1:16-CV-425, E.D. Tex. (Oct. 24, 2016) ("ABC"). An appeal is virtually certain, so this is not likely to be the last word on the regulations.

Pay Transparency – January 1, 2017 Implementation Allowed

The regulations require contractors to inform workers performing work under the covered contract of their status as independent contractors when they begin work on a covered contract. The contractor also must provide detailed wage and hour information to these workers who are paid under 1) the FLSA, 2) the law formerly known as the Davis Bacon Act, and 3) the law formerly known as the Service Contract Act. 

Specifically, a covered contractor must issue an itemized wage statement each pay period that lists the total number of hours worked in the pay period, the number of hours that were overtime hours, the rate of pay, the gross pay, and any additions made to or deductions taken from gross pay. If the contractor does not provide weekly wage statements, the hours worked and overtime hours must be broken down to match the period for overtime, which will almost always be weekly. 

An exempt employee does not need to receive a wage statement with the required detail if the contractor informs the employee in writing of his or her overtime exempt status before the individual begins work on the contract or in the first wage statement under the contract.  These wage and hour obligations go into effect on January 1, 2017. The ABC court left these obligations intact so contractors need to come into compliance by the deadline.

Limits on Pre-dispute Arbitration Agreements - On Hold

The regulations also restricted a contractor from requiring arbitration of a claim arising under Title VII of the Civil Rights Act of 1964, or any personal injury claim related to sexual assault or harassment, unless an employee or independent contractor voluntarily consents to arbitration after the dispute arose. The ABC court also barred the implementation of this portion of the regulations.

Recommended Actions

While the reprieve on the self-disclosure and arbitration ban requirements is welcome news, contractors should continue to monitor subsequent legal developments. Importantly, contractors should now consider their typical federal contracts and subcontracts and assess their ability to identify which employees and independent contractors work on those contracts and subcontracts so they can identify those working on covered contracts.  If it cannot, then it should consider how it wants to come into compliance with the detailed wage and hour requirements in the "Fair Pay and Safe Workplaces" regulations.  Contractors should also review the form and content of their employee wage statements to ensure compliance with the requirements. They should also consider how to inform exempt employees who work on a covered contract of their exempt status. Finally, contractors should review their process for bringing on independent contractors and how they will provide the required notice of their status as an independent contractor.  

If you have any questions on the "Fair Pay and Safe Workplace" regulations, please contact Pamela M. Ploor at (414) 277-5661 / pamela.ploor@quarles.com, Eric B. Johnson at (602) 229-5425 / eric.johnson@quarles.com, or your Quarles & Brady attorney.